I will forgive my readers if they think that my coverage of the recent debacle surrounding the potential for an imminent devaluation in Latvia has been a bit asymmetric. I mean, here I was; throwing fuel on the bonfire when it looked as if the cracks would make the edifice tumble and now as it seems that those cracks have been temporarily mended, I have gone silent. Well, not entirely then, and this post is thus to show that I actually do attempt to provide a balanced coverage.

Consequently, it seems as if the defences will hold in Latvia, but the apparent vote of confidence from the IMF and the EU commission and thus promises that the external loan financing will continue will not come for free. In order to make due on the loans the Latvian government is planning an unprecented range of spending cuts amounting to an astonishing 10%

...

As my readers may have noticed I am pretty much letting my colleague Edward running the show at the moment in terms of detailing the fall from grace of European economies. It is funny to think about how it is under a year ago that the notion of decoupling was fiercely debated. What a difference a couple of bust economies and banks make eh? In any case, what follows will be some semi-random observations on last week’s and the coming ditto’s events. As a common theme I think it is safe to say that in the context of the European economy as well as in a more wonkish theoretical perspective on the global economy push, as it were, looks very close to becoming shove. 

 

Towards a Common European Answer?

As I mentioned last week, Q4 was an absolute horror story in terms of European data with an aggregate Eurozone contraction of

…

Russia’s current woes can be readily summed up in just one single variable – the value of the ruble – and this value, as we all know, is falling. Almost uncontrollably so.br /br /blockquoteThe bank’s target will be “very quickly” breached without more intervention, said Gaelle Blanchard of Societe Generale SA in London. “Right now the market is convinced it wants to see the ruble lower,” Blanchard said. “As long as the central bank gives these targets, then speculators are going to have something to aim for.”br /br //blockquoteblockquote“The market is testing whether the authorities see this band as something permanent or something that will move,” said Lars Rassmussen, an emerging markets analyst at Danske Bank A/S. “Our view is that they’ll move it because it’s not worth wasting the reserves for a band that is obviously not wide enough.”/blockquoteblockquoteFirst Deputy Prime Minister Igor Shuvalov expressed regret that the general …

The Russian ruble fell yesterday (Monday) to levels not seen since the 1998 banking crisis, as the nation’s central bank devalued the currency for the sixth time in seven days. The devaluation is seen as a sign of further deterioration in the Russian economy and comes despite government efforts to orchestrate an orderly retreat.

A drop in the price of oil, the war in Georgia, and a gas-export dispute with the Ukraine have put a huge dent in the Russian economy, which now teeters on the verge of recession.  The devaluations reflect the new reality of low prices and falling demand for oil and other exportable commodities.

In order to contain the damage, the central bank is accelerating the ruble’s slide. Policymakers devalued the ruble every trading day last week except for Tuesday (Jan. 13), letting it fall an average 1.7% a day versus a basket of currencies. By comparison, November and

...

Iceland today (Thursday) secured nearly $11 billion in loans from the International Monetary Fund (IMF) and other nations. The bailout will help the island nation stabilize its currency and recapitalize its banks, but it will also saddle its tiny population with a huge debt burden.

The IMF will lend Iceland $2.1 billion, and Finland, Sweden, Norway and Denmark will loan $2.5 billion to help the country re-float its currency and shore up its banking sector.

The Icelandic krona, or crown, has lost about 70% of its value since the nation’s financial crisis first began. The government put restrictions on currency trade as it wrestled with the crisis, however one of the stipulations of the IMF loan is that Reykjavik once again float its currency. Once it does, it’s likely that there will be a “massive currency outflow,” Iceland’s central bank said.

The krona, which traded at 176 against the euro

...

by Edward Hugh: Barcelona Keynes, however, once semi-seriously proposed, as an anti-deflationary measure, that the government fill bottles with currency and bury them in mine shafts to be dug up by the public. Ben Bernanke, Deflation: Making Sure "It" Doesn't Happen Here Many of the macro-economic fundamentals of Spain today are very different from those of ten or fifteen years ago...........A lot of factors look better this time around. Compared to its history, Spain has low interest rates, low unemployment and a strong fiscal position........the 2007 levels of government debt, unemployment and interest rates are about half the level of 1993. Equally, a lot of factors related to debt levels, housing and bank funding are worse versus the last downturn. For instance, the relative size of mortgage debt or total private sector debt to GDP, or the size of the construction sector to GDP, were all about 60% bigger in 2007 than in 1993. As was the bank system’s loan-to-deposit ratio. And the housing PE has expanded almost as much. So when Spanish bank management’s argue that the world today is not like the early 1990s, they are right: some things are better, but others are worse. As Mark Twain noted many years ago, history may not repeat itself but it does rhyme. Spanish Banks, How Bad Can It Get? - Citigroup, September 2008 As I suggest in the title, the contents of this post resembles more an online training session about how the recent proposals to refloat and reinforce the Spanish banking sector may work out in practice than a conventional blog post, but still, this is the weekend, and at weekends, as well as all that interminable football, hiking and tapas snacks in bars, people are supposed to enjoy complementary and value-enhancing activites like going on courses, aren't they? So why don't we have a try. But remember, this topic is only for those with the sternest of stomachs, and the greatest of abilities to find - now what was the word Krugman recently used, ah yes, beauty - in that otherwise most arid of landscapes, the world of financial book-keeping. So, as is the custom in all good training sessions, let's all start by watching a video, just to get us in the mood, and into the swing of things as it were. I think after the viewing what follows may be a lot more digestable, and certainly it should be more comprehennsible. (The version is conveniently supplied with substitles in Castellano the benefit of any Spanish speaking readers who might drop by).

by Edward Hugh: BarcelonaHungary's agony continues with both currency and stock markets falling sharply yesterday while bankers continue to report acute credit shortages. At the same time contagion has started to extend its ugly reach right across eastern Europe, with Ukraine, the Baltics and Serbia (at a minimum) all in ongoing negotiations with the IMF, with the credit crunch which has followed in the wake of the global financial turmoil really starting to bite.

"Many central and eastern European countries simply don't have either the financial strength or the technical expertise to bail out banks,'' said Lars Christensen, a senior emerging-markets analyst at Danske Bank A/S in Copenhagen. "It's like an Iceland look-a-like contest and there are a number of candidates looking very fragile at the moment.''

Emerging-market banks plunged this morning after Standard & Poor's warned that Korea's lenders will struggle to refinance ...